The RBI has amended the FEM (Foreign Exchange Derivative Contracts) Regulations 2000, with effect from 6 March 2020. Amongst others, the definition of ‘foreign exchange derivative contract’ has been amended as under:

“Foreign exchange derivative contract means a financial contract which derives its value from the change in the exchange rate of two currencies at least one of which is not Indian Rupee or which derives its value from the change in the interest rate of a foreign currency and which is for settlement at a future date, i.e. any date later than the spot settlement date, provided that contracts involving currencies of Nepal and Bhutan shall not qualify under this definition.”

Further, the provisions related to ‘Permission to enter into a foreign exchange derivative contract’ have been combined for both residents and non-residents and includes permission to enter into ‘exchange traded currency derivative contracts’ as well, in accordance with provisions contained in a substituted Schedule I.

The terms ‘contracted exposure’, ‘anticipated exposure’, ‘currency risk’, ‘hedging’ and ‘exchange traded currency derivatives’ have now been specifically defined.

Please refer to the attached comparative table of the amendments vis a vis the principal regulations. To refer to the notification of the FEM (Foreign Exchange Derivative Contracts) (First Amendment) Regulations 2020, dated 18 February 2020, click here.